How this digital-only bank lowers risk of sign-up fraud

“Offering new customers an entirely mobile and digital account opening process is still a challenge for many banks, partly because of added difficulty in meeting know-your-customer requirements and preventing fraud in instances when a customer isn’t sitting across the desk.

But some banks are using application programming interfaces, or APIs, to pull in data from diverse sources to prevent fraud and offer greater clarity in digital account opening.

One of those is Aspiration Bank of Marina Del Rey, Calif. The digital-only startup launched in 2015 with high-minded ideals such as a name-your-fee account and donations to charities based on the amount of money the bank makes. (Aspiration partners with the noted fintech collaborator Radius Bank to offer deposit accounts.)

“The biggest challenge for us as a purely virtual bank is: How do we keep the customer experience simple while also making sure we’re meeting our obligations from a risk and fraud perspective?” said Vaibhav Puranik, director of banking and credit products at Aspiration.

To help in this regard, the bank last July began working with the fintech firm Alloy, which provides an API to financial services companies that have a regulatory requirement to identify their customers when they open accounts. Alloy provides banks access to both traditional and alternative data sources on customers.

“One of the biggest challenges is how we verify identity,” said Puranik, who added that Aspiration currently has about 200,000 accounts with some $300 million in deposits. “You can integrate with six different [data] providers, but that creates a complicated technology setup and makes it hard to visualize for our partner bank and the compliance team.”

This also allows Aspiration to make quick decisions on new accounts, which is crucial for a digital-only bank targeting the savvy millennial demographic, Puranik noted.

“When customers hear about us and our mission, they get very excited since we are a socially conscious financial services firm and we strongly believe in doing good,” he said. “But if they don’t get an answer [after applying for an account] immediately, they tend to forget and move on. They want an answer quickly.”

Identity verification is often the biggest stumbling block for many banks in offering digital account opening, said Tommy Nicholas, co-founder and CEO of Alloy.

“All banks would like to do digital onboarding; it’s cheaper and a better experience for the customer,” Nicholas said. “But it’s hard for them to do well and at scale, because of compliance and risk concerns.”

The key for preventing fraud in digital onboarding for banks is to take a holistic approach and use all the tools available to them, including APIs, biometrics, blockchain, document authentication technology and artificial intelligence, said Christine Leong, identity innovations lead with Accenture.

“With every new version of technology there are new risks but also new opportunities,” she added. “There are a number of new capabilities out there to help banks manage fraud to make the risk around digital onboarding more acceptable.”

Using APIs to pull in more robust data such as Aspiration is doing is one of them. Data collection has become more robust and simpler for banks to do, she added.

Since using Alloy’s services, Aspiration has reduced the total time to complete a new application to less than five minutes, with a 10% increase in application approvals as a result of the incorporation of richer data elements. It also has seen a 50% reduction in fraudulent account openings and 95% reduction in applications that have to be manually reviewed.

Creating a safe and seamless digital onboarding experience will be crucial for banks as it becomes the normal expectation of consumers, Leong said.

“As we move into our digital life in all aspects — through our devices and cars or internet of things devices — digital customer onboarding will become very commonplace for banks,” she said. “And as the security controls get better, the customer experience also gets better.”